Table of Contents
South Africa’s economy has been controlled by apartheid and colonialism – racially exclusive economic and political systems predicated on exploitation of natural resources, notably gold and other minerals (Faulkner & Loewald, 2008). A large urban African working class has urbanised in the manufacturing and mining industries, but was subject to high labour supply costs, imposed because of Apartheid’s spatial dislocation policies. Separate and massively unequal public services, particularly education, donated to the creation of large urban geographically isolated societies with low education heights and little means for self‐made economic development. Until 1986, unions designed by black labour were prohibited, helping to keep real consumption wages little.
The cessation of apartheid and colonialism and in different parts of the world has led researchers to channel their attention and determinations to concepts such as evolution and merging of democracy. They have over time become more noticeable and pronounced since the commencement of democracy in most African countries, including South Africa.
South Africa’s change of democracy in 1994 created beliefs of a dramatic adjustment in the economic performance (. Trade and financial divisions and internal political opposition to the apartheid government was instrumental to the poorest ten-year growth performance between 1984 and 1993 since the Second World War (an industry most linked to commodities). The removal of these confines was widely expected to renovate the country’s economic presentation. This paper works out the professed performance of the economy over this decade along a quantity of dimensions, comprising economic growth, its components and proximate causes and economic stability (du Plessis & Smit, 2006).
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Economic Transformation
The immediate causes of slowing growth in the decade prior to 1994 were trade and financial sanctions in opposition to the Apartheid government, political unsteadiness and macroeconomic policy decisions that attempted to save the economy but resulted in higher inflation, increased uncertainty, and declining investment. The 1994 democratic assignment has made significant strides to improve the well‐being of the society. The rapid reestablishment of a basic level of political certainty post-independence was followed by assurance building economic publications, the combination of which aided to reverse low consumption and investment levels. Output in the economy abruptly switched from contraction to progress, and since 1994, has accelerated steadily .
The United Nations Economic Commission for Africa’s (2013) reports show that Africa’s failure to design and execute a successful democratic project is sabotaged mainly by internal and external factors: poor planning, poor economic management capacity, macroeconomic and political volatilities, and constrained investment in societal and economic infrastructure. Conferring to the United Nations Economic Commission for Africa (2011), the delay of transformation plan is because Africa’s growth is highly non‐inclusive payable to its limited control on employment generation and overall upgrade in the living standards of people.
In South Africa, the model of socio‐economic makeover has received significant attention as an end result of the country’s current socio‐economic tribulations. The South African economic transformation that has occurred in South Africa since the freedom of former president Nelson Mandela, has undergone a significant structural amendment. This economic adjustment had a significant effect on citizens and also on the business and financial investment environment in South Africa.
The trial for the modern South Africa was to establish an economic and social-political environment where citizens would have access to quality enterprise and work opportunities. These included access to the capacities and skills to make usage of these openings. Different business opportunities would have to become innovative, adaptive and internationally competitive. The challenge was to come up with platform of competitive input prices, skills, infrastructure and logistics, technology, partnerships, innovation, efficient regulation and effective government offerings. Consumers were to have access to secure and competitively priced quality goods and services in a non-exploitative system that motivate producers to respond to consumer needs, while providing constructive recourse mechanisms where exploiting occurred.
Against this commercial and policy structural adjustment process, since 1994 investment openings in South Africa have also been through structural adjustment. The risk of investment increased significantly due to the opening of the South African economy to globalization. Therefore, it has now become necessary to analyse the effects of these macroeconomic stabilization policies on the performance of the various domestic and global asset classes available for the South African investors, so that rational and risk-free adverse decisions can be considered by the portfolio manager and broker, as well as the stakeholders.
The South African economy throughout the late 1970s began to enjoy a steady upsurge in manufacturing and mining activities buoyed by the increasing oil and gold prices. The drop in both oil and gold prices in the early 1980s heavily impacted the industry with additional international pressure being mounted against the apartheid regime. The international community began to increase pressure on the socio-economic system with anti-apartheid sentiment leading to international lines of credit being withdrawn.
As mentioned in the book by (Feinstein, 2005), lines of credit were beginning to be revoked with calls for all loans to be paid before any additional investments were. Political missteps by the Botha premiership and the continued social disorder and despondent marginalised work force began to weigh heavily on the economy. South Africa was still an inviting and seemingly profitable nation for investments but as the politically landscape was changing, several international companies began to pull away from South Africa.
Economic Strategies
The political landscape in South Africa changed, with the National Party losing prominence with changing social seizure. The African National Congress (ANC), as it looked to correct decades of social inequality, embarked on an ambitious macroeconomic strategy called the Reconstruction and Development Programme (RDP). The RDP was a policy document formulated by ANC with assistance and research by various stakeholders as the main driving vehicle to drive the new South Africa economy from the melancholies of the Apartheid regime.
The RDP looked at addressing a high violence rate, lack of housing, employment creation, imbalanced education and health system, good governance, and all in the belief that they would positively affect the economy. The paper by (Faraz Fareed Rabbani, 2019) summarises the objectives of the RDP,
“Some people argue we must first strengthen our economy, and only then can we provide money to develop our poorer, disadvantaged communities. The RDP says NO to this. Of course, we need our economy to grow. We need to produce more. But we also need to start now to wipe out poverty. Our people can wait no longer. Building the economy and developing the country must happen side by side.”
In 1996 after the appointment of a new Finance Minister Trevor A. Manuel, was met with negative sentiments, with a 27% decline of the Rand against the United States Dollar to R4.60. The RDP even after a couple of success only managed to run for a couple of years, enjoying success in inducing a more democratic state and society. Failure to deal with issues of violence, rising unemployment and redistribution of agricultural land, saw the bundling of the RDP.
In June 1996, a few months into his term, Trevor Manuel published the finance ministry’s new macroeconomic and fiscal program called Growth, Employment and Redistribution (GEAR), which set out to lower the high inflation (9.7 percent in 1993) and reduce the budget deficit that had reached 7.4 percent from the RDP programme spending. Considering that the RDP was the ANC’s policy leading to the elections, the policy had what was deemed socialist leanings, and with the lack of buy in GEAR which seemed to take on a more realistic approach was quickly included (Hart and Padayachee, 2019).
The objectives of GEAR as summarised by (Treasury.gov.za, 2019), included:
- Creation of a growing economy
- Lower unemployment by increasing jobs
- Redistribution of income to include the largely marginalised
- Development of an all-inclusive health and education system
GEAR differ from the RDP in most due to its stance on government spending to spear head the economy. The policy was geared to spearhead economy by encouraging private spending and investment to provide a more sustainable avenue of growth and lessen the burden on government on taxpayers. As observed in the years that followed, the initial projections were not met with average GDP growth in the middle of the period of 1996 to 2000 sitting at 2.8% contrary to the projected 4.0% average. During this period jobless growth and an increasing labour equality between the skilled and unskilled workers who coincidently were mostly white and black respectively.
A new monetary policy framework (inflation targeting) was instituted in 2000, which helped to anchor inflation at a lower level and to increase the credibility of the South African Reserve Bank (SARB).
From 2001, low interest rates, achieved via disinflation and a more sustainable fiscal policy, have backed to a steady upsurge in investment growth rates and heightened activity in key economic sectors, including construction, financial services, and retail and wholesale trade. This stronger economic growth supported tax revenue and sustained a consistent rise in public spending since 2001 on health, education, the built environment, and public infrastructure.
